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CFTC files enforcement actions against International Commodity Advisors, ProfitStars Int’l Corp, and Paragon FX Enterprises

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The US Commodity Futures Trading Commission (CFTC) today announced it filed separate but related civil injunctive complaints in the US District Court for the Southern District of New York in connection with the operation of two forex pooled investment vehicles operated by International Commodity Advisors (ICA) of Marietta, Ga., and ProfitStars Int’l Corp. (PSI) of Dallas, Texas.  The CFTC filed a third injunctive action against Paragon FX Enterprises, LLC (Paragon FX) of New York, N.Y.

The CFTC’s complaints against ICA and PSI, filed on 31 October, 2011, charge them with engaging in an act or practice which operated as a fraud under Section 4o(1)(B) of the Commodity Exchange Act (CEA) for failure to disclose material information, including that the counterparty to the retail forex transactions that were offered or entered into with the respective pools was not registered as a retail foreign exchange dealer (RFED).  The CFTC also charges ICA with unlawfully operating a forex pooled investment vehicle without being registered as a commodity pool operator (CPO).

The third CFTC complaint, also filed on 31 October, 2011, charges Paragon FX Enterprises, LLC (Paragon FX) with unlawfully acting as a RFED, as defined by CFTC regulation 5.1(h)(1), 17 C.F.R. § 5.1(h)(1) (2011), without being registered as such.

In each of these three federal court actions, the CFTC seeks restitution, disgorgement of ill-gotten gains, civil monetary penalties, and permanent injunctive relief.

ICA and principal Gregory W. Seitz charged with failing to register as a CPO and failing to disclose material information to pool participants

The CFTC charges that ICA, and its owner and principal, Gregory W. Seitz, also of Marietta, Ga., from at least 18 October, 2010 through 13 December, 2010, managed and traded clients’ funds in retail, leveraged forex transactions and operated a forex pooled investment vehicle named ICA Forex CP I LP (ICA Forex Pool) without being registered as a CPO in violation of Section 2(c)(2)(C)(iii)(I)(cc) of the CEA, to be codified at 7 USC. §  2(c)(2)(C)(iii)(I)(cc), and CFTC regulation 5.3(a)(2)(i), 17 C.F.R. § 5.3(a)(2)(i) (2011).

The CFTC complaint also charges ICA with failure to disclose material information to its pool participants and prospective pool participants, which operated as a fraud or deceit upon participants or prospective participants, in violation of Section 4o(1)(B) of the CEA, to be codified at 7 USC. § 6o(1)(B), including that: (i) it was acting as a CPO while being unlawfully unregistered or without claiming a valid exemption from such registration; and (ii) the counterparty to the forex transactions that were offered or entered into with the ICA Forex Pool was not registered as a RFED, as required by law.

ProfitStars Int’l Corp. and principal Ulysis K. Starling charged with failing to disclose material information to pool participants and failing to provide National Futures Association with notice regarding invalid claims of exemption

The CFTC’s complaint against PSI, and its principal, Ulysis K. Starling, also of Dallas, Texas, charges that, from at least 28 October, 2010 through 13 December, 2010, the defendants operated a pooled investment vehicle named ProfitStars and managed and traded pool participants’ funds in retail, leveraged forex transactions, using an unlawfully unregistered entity, Paragon FX, as the counterparty to forex transactions with the ProfitStars pool.

The complaint also alleges that PSI failed to disclose the following material information to ProfitStars pool participants: that (1) PSI had opened an account using ProfitStars pool funds at Paragon FX under PSI’s name rather than the ProfitStars pool name; (2) the counterparty to the forex transactions that were offered or entered into with the ProfitStars pool was not registered as a RFED, as required by law; and (3) PSI was not entitled to the disclosure exemption it was claiming under CFTC regulation 4.7(b), 17 C.F.R. § 4.7(b) (2011), because many of the ProfitStars pool participants were not qualified eligible participants (QEPs) as defined in CFTC regulation 4.7(a), 17 C.F.R. § 4.7(a) (2011).

Court order freezes PSI’s assets and protects books and records

In the PSI matter, on 10 November, 2011, Judge Paul Engelmayer, in the US District Court for the Southern District of New York, issued a statutory restraining order freezing PSI’s assets, appointing a temporary receiver, and prohibiting the destruction of books and records and granting the CFTC access to such records.

Paragon FX Enterprises LLC charged with failing to register as a RFED

The CFTC’s complaint filed against Paragon FX charges that, since 18 October, 2010 and through December 13, 2010, Paragon FX, through its officers, employees, or agents, while acting as a RFED, accepted orders from non-eligible contract participants in connection with retail, leveraged off-exchange forex transactions without registering with the CFTC ,in violation of Section 2(c)(2)(C)(iii)(I)(aa) of the CEA, to be codified at 7 USC. § 2(c)(2)(C)(iii)(I)(aa), and CFTC regulation 5.3(a)(6)(i), 17 C.F.R. § 5.3(a)(6)(i) (2011).

Court enters order freezing Paragon FX’s assets and protecting books and records

Also, in this matter, on 31 October, 2011, the US District Court for the Southern District of New York issued an ex parte statutory restraining order prohibiting the destruction of books and records, and granting the CFTC access to such records. Thereafter, the Court held a show cause hearing on November 8, 2011, regarding the CFTC’s request for a partial asset freeze of funds that were held by Paragon FX, and appointing a receiver to take custody and control of such assets.

On 10 November, 2011, Judge Engelmayer in the US District Court entered an additional statutory restraining order imposing a partial asset freeze relating to funds that were held by Paragon FX, appointing a temporary receiver to take custody and control of such assets, and continuing in effect the Court’s earlier statutory restraining order regarding Paragon FX’s books and records.

These actions represent use of new authority granted to the CFTC under the 2008 Farm Bill and the Dodd-Frank Act to regulate foreign exchange dealers.
 

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